Russia Joins Call for Continued Output Cuts As U.S. Production Set to Exceed 6.5 Million Barrels in February

Fat Prophets envisions WTI hitting $80 by year-end. File Image / Pixabay

With U.S. shale output about to surge above 6.5 million barrels per day (bpd) in February, Russia has joined the chorus of nations urging the Organization of the Petroleum Exporting Countries (OPEC) to stick to its production cutback initiative.

Although the deal is scheduled to last to the end of 2018, many analysts fear the cartel will withdraw prematurely due to the current crude price surge and rampant U.S. output.

Speaking to reporters at the annual Gaidar forum on Tuesday, Alexander Novak, energy minister for Russia, remarked, "Right now, I think the agreement must continue and not react to momentary, passing changes.

"I believe we need to be consistent and stable in our decisions and make our judgments carefully, based on long-term thinking."

Novak said it isn't clear whether current high crude prices are long-term, but he stressed that price is not a leading indicator and that a healthy supply and demand balance is more important.

The remarks dovetail a forecast released on Tuesday by the U.S. Department of Energy showing that output from the nation's major shale oil regions will grow by 111,000 bpd next month to 6.55 million bpd, compared to an estimated 6.44 million bpd for this month.

For its part, none of the OPEC members or its president, the United Arab Emirates, have given any indication that they are considering ending the cutbacks prematurely; in fact, their sentiment of being committed to staying the course regardless of U.S. shale has been consistent.

If everything remains status quo, the question then becomes, by how much can crude prices grow?

That question was put to David Lennox, commodity analyst at Fat Prophets, and in response he told Bloomberg television that the two threats to higher crude prices are compliance within OPEC and continued growth of U.S. shale.

He said that while "we're comfortable with compliance" because OPEC members need the current prices to support their economies, "shale is the one we've got to really watch."

However, Lennox predicts West Texas Intermediate could climb as high as $80 per barrel by year-end.

Earlier this week, crude's strong market showing caused Citigroup Inc., Societe Generale SA, and JMorgan Chase & Co. to worry that OPEC will ramp production back up in order to discourage rival supply growth.